Chapter 2 - Demand and supply: The basics of the market economy. After reading the material in this chapter, you should be able to: Describe key elements of a market, explain how the price in a market affects the quantity demanded, explain how the price in a market affects the quantity supplied, discuss why the number of markets can increase. | Chapter 2 Demand and Supply: The Basics of the Market Economy McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Describe key elements of a market. Explain how the price in a market affects the quantity demanded. Explain how the price in a market affects the quantity supplied. Discuss why the number of markets can increase. 2- Key Elements of a Market Markets consist of buyers and sellers. Voluntary exchange of a product for money Product is a good or service. Price is the rate at which exchange takes place. Starbucks is an example of a market. Seller of coffee; but also buyer of coffee beans and employee hours. 2- Local, National, and Global Markets Markets differ geographically. Local markets - buyers and sellers are close to each other Personal services are an example of a local market (., dry cleaning). National market - transactions conducted across the country Stock transactions are an example of a national market. 2- Local, National, and Global Markets Global market - goods and services are sold anywhere in the world Oil is a product sold in the global market. Price of oil is determined by global supply and demand The internet has transformed local markets into national and global ones. As a result, more goods and services are traded in the national market. The online auction market created by eBay has played a major role. 2- Prices Defined The market price is defined as the typical price at which goods and services are exchanged in a market. Identifying the price is not always easy. Sale price: seller lowers typical price Negotiated price: Set by bargaining between buyers and sellers Differs from sticker price Common in markets for big-ticket items such as automobiles 2- Prices Defined Often, prices are lowered for large, bulk purchases (volume discount). Purchases at warehouse stores such as Costco and Sam’s Club are examples. Purchases made ahead of their use result in . | Chapter 2 Demand and Supply: The Basics of the Market Economy McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Describe key elements of a market. Explain how the price in a market affects the quantity demanded. Explain how the price in a market affects the quantity supplied. Discuss why the number of markets can increase. 2- Key Elements of a Market Markets consist of buyers and sellers. Voluntary exchange of a product for money Product is a good or service. Price is the rate at which exchange takes place. Starbucks is an example of a market. Seller of coffee; but also buyer of coffee beans and employee hours. 2- Local, National, and Global Markets Markets differ geographically. Local markets - buyers and sellers are close to each other Personal services are an example of a local market (., dry cleaning). National market - transactions conducted across the country Stock transactions are an example of a national
